Privatizing the University of Michigan

Time magazine this week published an article speculating that the University of Michigan might become a private institution. I had heard some chat about this earlier, but didn’t take it seriously. But if it is in Time… My first thought was to discount it. My second was, “OH, WOW!”.

Ann Arbor’s relationship with UM has been like that of a person who wears a really big diamond pendant around the neck. On the one hand, it glitters and is highly valued; on the other hand, it can cause headaches and neck strain. Because the UM managed to get itself written into the Michigan Constitution as a sovereign institution not liable to local regulation of any kind, Ann Arbor residents have been living with the proverbial 800-lb gorilla for some time. (I recall reading an early history of the town where some rowdy students set the boardwalk on fire, back before sidewalks came along.)

It seems that ever since I moved here, there have been numerous task forces convened by the mayor or someone else, to “communicate” on town-gown issues. But UM doesn’t have to consult with the city about anything, and especially not about land use. Since they have been gobbling up increasingly large bites of the real estate in the city, this has some profound effects. The difficulty the city and its residents have in working with UM has been most recently highlighted by the Wall Street development issues. They have essentially zeroed out what was once part of the Lowertown neighborhood, and surrounding residents have nothing to say about it.

The UM has continually been acquiring property that over time has amounted to a significant fraction of the tax base of the city. Recall that we (Ann Arbor) are essentially locked out of further expansion. Under some agreements with surrounding townships, the city has been annexing township islands and filling in its borders within what is essentially the freeway ring. But that’s it – we won’t be able to expand further, so that once we finish annexing the last drops of land within the fixed border, each bite the UM takes will be out of a shrinking pie. I haven’t seen recent estimates, but some years ago it was said that UM occupies 40% of the land mass within the City of Ann Arbor.

Of course, that has major tax implications. According to data presented by the Ann Arbor Chronicle, the city’s property tax revenues have been about $50 million a year (and falling). Imagine if we could add a 40% increment onto that – about $33 million if proportional, but oh my, those expensive buildings, and then there is the personal property! (Note that Ann Arbor’s so-called “personal property tax” is actually equipment used for business purposes.)

But since the UM doesn’t pay taxes on its property, Ann Arbor has had a “structural deficit” for many years, resulting in budget shortfalls. Two past studies have been done on the feasibility of a city income tax (available by links from this Chronicle story), one as the result of a committee on which I served in the mid-90s. I remain convinced that an income tax could be a fair way for the city to recoup some of the dollars represented by that tremendous corporate campus that is the UM. The City’s newest budget priorities include examining the possibility of an income tax once again.

If UM did become a private institution, it would doubtless seek to have some part of its taxes forgiven as a non-profit. Perhaps it would even attempt to become private and somehow retain its constitutional immunity. Ann Arbor and its representatives should fight that tooth and nail. We would want them to have to obey local laws like anyone else. And please, don’t tell me the UM could just pick up and leave. Their physical investments here are too great.

Part of becoming a private institution might mean a greater economic homogeneity among the students. But in a world where new student housing is commanding $1000/month or more for a single bedroom, I wonder how many lower-income Michigan residents are being served now. According to the Time article, only 12% of students are eligible for Pell Grants, while other states’ universities have at least 30% of their students eligible.

The motivation for privatizing would partly be prestige, to get away from being “merely” a state university (so says the article). Clearly if UM does want to go this route, it can’t be called the “University of Michigan” any more. It needs to do what any really competitive enterprise does, and “rebrand”. I’ve done some advance work for them, and I’m willing to donate my creative work to the UM gratis. The new brand is…Unim! Pronounced “you-nim”. As in, “yeah, I’m at Unim”.